Because there are a significant number of required expenses, it is important for you to understand the Total Closing Costs When Buying a Home before writing an offer. Please note, this article is written for home buyers in the Northern California market.
The total costs required when buying a home can be put in five major categories:
- Down payment
- Mortgage fees
- Title and Escrow fees
- Pre-payable Property Expenses
- Property Inspection Costs
Down Payment:
The minimum required down payment can be as little as $0 down with a VA loan, 3.5% (of the sales price) down with a FHA loan or 10% + (of the sales price) down with a Conventional loan.
Mortgage fees:
- Origination fee: This reflects the mortgage lenders cost to process and approve your mortgage application as well as the cost to draw the legal mortgage documents that you will sign at closing. The charge currently appears to range from $1400 – $1700.
- Discount points: Discount points are paid to discount (lower) your long-term interest rate. Discount points vary based on the mortgage amount and the amount you are lowering your interest rate. A very general rule of thumb is that it will cost you 1% of the mortgage for every .25% you want to lower your interest rate. For instance, if your mortgage will be $500,000, you will generally pay $5,000 for every .25% reduction in rate.
- Credit report: Everyone knows about this one. Mortgage lenders review the report from all three credit bureaus and the total cost is typically $21 – $35 combined.
- Appraisal fee: For most mortgage loans, the charge for the property appraisal is $425. If the mortgage loan is greater than $1 million, many lenders require the appraisal plus and additional $175 – $250 for an appraisal review. If the mortgage loan is greater than $1.5 million, many lenders require two complete property appraisals ($850 +/-).
- Flood determination: This is charged to access the FEMA Flood Maps to determine if any part of the property is located in a Flood Zone. If so, you will be required to obtain Flood Insurance as part of your mortgage approval.
Title and Escrow Fees*:
- Title insurance for you: this fee is based on the Purchase Price of the home. Title Insurance protects the owner and mortgage lender against loss or damage resulting from liens, encumbrances, defects in title or inaccuracies in the chain of title search.
- Title insurance for your mortgage lender: this fee is based on your mortgage
- Escrow fee: this fee is based on the purchase price of your home. The Escrow Officer is the person responsible for making sure all liens, encumbrances and all parties are paid appropriately
- Document preparation: this fee is based on the number of documents that escrow must print and prepare on behalf of the mortgage lender or other parties
- Notary fee: this is a required fee to notarize the various documents
- Recording fees: There are certain documents that must be recorded in order to make your ownership legal. The recording fees are charged by the county.
* Use Fidelity National Title’s Estimate website to determine the Title and Escrow fees for the anticipated purchase price and mortgage balance of your new home.
Pre-payable property expenses:
- Property taxes: Property taxes are paid twice per year, with 6 months of taxes paid with each payment. You will pay the property taxes that are due for your portion of ownership during that six month period. Depending on the month your home purchase closes, you could pay (or reimburse the seller) for anywhere from 2 to 6 months of property taxes. The baseline for annual property taxes in Contra Costa county is 1.25% of the purchase price. Many cities have additional tax levies for schools, roads, etc so use 1.40% of the purchase price as your “rule of thumb” calculation. For instance, again using a $500,000 purchase price, $500,000 x 1.4% = $7,000 per year or $583.33 per month.
- Homeowner’s insurance: Homeowner’s insurance is paid in advance for one year at closing. This holds true even if you have an account set up with your mortgage lender to pay the insurance because each payment you make includes 1/12 of the homeowner’s insurance that will be due the following year. The actual cost of the Homeowner’s Insurance will depend on the company you choose.
- HOA dues (if applicable): If you are buying a condominium or townhome, 2 months of the HOA dues are typically required at closing.
- Mortgage Interest: Interest is due on the mortgage from the day of closing through the end of the month.
Property Inspection Costs:
Please take moment to read Common Property Inspections on Real Estate Transactions. Depending on the type and amenities of the home you buy, the total cost of property inspections average $900 to $1,400. Although this may sound expensive, these inspections can save you from thousands in future, unexpected repairs so don’t scimp on the inspections!
Putting it all together
You can manually calculate your costs or scroll down and fill out the request form and we’ll prepare a Closing Cost Summary for you.
__________ Downpayment (% x Sales Price)
_$1,200___ Property Inspections, average total cost
_$1,600___ Origination Fee (confirm actual fee with your chosen lender)
__________ Discount Points (optional)
___$30____ Credit report
__$425____ Appraisal
__________ Appraisal review fee (if applicable)
___$30____ Flood Determination
__________ Title/Escrow fees from Fidelity National Title’s website
__________ Property taxes
(Sales Price x .014 (or 1.4%) divided by 4 = 3 months property taxes due at closing, average)
__________ Homeowner’s Insurance
(Sales Price x .0012 = average annual homeowner’s insurance)
__________ HOA dues (actual monthly Dues x 2)
__________ Mortgage Interest
(Sales Price x interest rate divided by 365 x number of days from closing through the end of the month)
__________ Total – add them up!
© Wendy Cutrufelli, Contra Costa Real Estate Resource
